It's been a while since I last posted my thoughts on what to do and where to go with regards to the economy. I wanted to see how the President and Congress would work together and what kind of package would result. The most obvious thing we can see is that nothing has changed as far as politics are concerned. To the government, I say please, "Bail me out". Why is the average joe stuck around with their hands in their pockets pulling out what amounts to lint out of this package. Why is negligence and stupidity being rewarded, while dedication and hard work are being punished by what will amount to a long term debt cycle. It makes no sense whatsoever. What am I going to get out this whole $900B that is being put forth in round one? Nada. I knew that going in, but it illustrates a point. The average family who's just getting by isn't going to see much of anything. The dunce who didn't know that their ARM (adjustable rate mortgage) is going to reset, we'll he'll catch a break. How about the genius CEOs in the banking industry who seem to think that leveraging themselves 30x over was a good idea. Sure, when times are good, you make more money. But when the boat springs a leak its down a helluva lot faster than the Titantic and a lot more lives affected.
So getting back to my original intention for this blog, which is to let the government and congress know there are simple ways to get us back on our feet a whole lot faster and smarter than what we are doing right now. Let's talk KISS. KEEP IT SIMPLE STUPID. How many times do we have to hear this and how many times do we have to see Congress and the President screw it up with all sorts of moving parts. I hope you guys are listening because this single manuever will probably stave off most of the mortgage failures that are in current process and will also add several billion in free spending dollars for americans. Make all the mortgage companies reduce their customers current mortage rate down to 3.5%. If you are currently holding a $350K loan and paying 5.75%, you'll immediately save $500 per month. That's $6000 per year. If there are 40 million households, you've basically added another $240 Billion in spending money.
Most people who are underwater have two basic options, continue to pay their mortgage at this reduced rate or give up their home. There is a reason a mortgage is 30 years long. Stay in your house eventually it will appreciate back over what you paid for it. At least that would be true for most. A second more complicated plan for dealing with underwater properties is to reduce the principal amount down to the current value and when the property is sold, the overage on the loan is first paid off and then whatever is remain would go to the property owner. That way the banks aren't getting slaughtered.
Now the next big question is what to do with all these great banking CEOs. We certainly could entertain the Chinese method for motivation, by executing one or two. Hey, Dick Fuld, any last requests? Bernie Madoff sorry but your last request is denied. How many of these guys do you think the US Government would have to put down to get the rest on the straight and narrow. Maybe if we had done that with the Enron folks, we wouldn't be in such a spot today. So besides killing these guys off, they need to be replaced. They need to be forced to work in a homeless shelter or better yet, let them spend a year on the streets. There have to be some intelligent people out there who can take over the Big banks of the US aren't there? Maybe the banks need to focus on what they did well back in the day, which was, take in deposits and loan out funds to deserving individuals and businesses. All this esoteric cover your assets derivative crud is what got you in trouble. How about going back to the face to face method of dealing with people. That would be nice. And please, don't try to sell me on your free checking plan that some how manages to charge me outrageous fees for taking out my own money. Its not nice.
Next is how do we get people working again? Rather than have all these companies summarily layoff thousands of people in large blocks, we need a matchmaking service to intervene. Not every industry is dying, some are actually still going to thrive and you know what the hardest part of their survival is going to be? First is making a product that sells, second is finding really good people to work. There needs to be a database of companies and industries that are expected to outperform the economic market. They need skilled workers, and guess what, I'm sure Goodyear just let go of whole bunch. For every worker that Goodyear can place with another firm, they should get a bonus from the government. Everybody who files unemployment should fill out a skills based survey and what jobs they worked and would like to work. Employers looking for people should be able to access that database and contact anybody who fits their need parameters. In effect, let the government become an employment agency. During this time, you need to give incentives to hire people. There are lots of companies who are making money, but they see the falling stock market and their own diminished stock price and feel they can maintain their earnings by laying off workers, which in turn will give them a better stock market value. You are cutting off your nose to spite your face. The economy will eventually turnaround and guess what, when you want to hire people back, there is a good chance they'll be working for someone else.
Now probably the hardest part for all americans will be this one. Buy American. Why will this be hard? Because we barely manufacture anything worth purchasing apparently. I went to the supermarket the other day and bought some jarred fruit. I was getting ready to eat it and took a look at the label. It was imported from China. Why are we importing jarred strawberries from China? Seriously, jarred fruit? Stores need to start bringing in US goods. Is it really that much cheaper to bring in goods that takes weeks upon weeks to get here by boat? Are the extra few pennies worth it. Aren't you tired of buying clothes that shrink to rinky dinky size after three washes? I am. Create Quality Sell Quality Make More Money!!
More stuff later!
Friday, January 09, 2009
Fixing the economy - Part II. Not sure how many parts there are going to be, but then again, by the time I finish this part we could already be in a depression. Seriously speaking, we need to fill in the black holes of the US economy. The first real black hole was addressed in my previous note regarding creditcards and what to do with them. The second major black hole for americans is healthcare costs. Its going to take an inordinate amount of time to put in a system that allows americans to have a universal system. Call me pessimistic, but there are too many self serving forces that will prevent a good national system of healthcare. The healthcare system may be the only one where trickle down economics really works. All of the money trickles down from the american worker and corporations down into the malpractice attorney hands. Of course that is only part of it. So where do we start when it comes to fixing such a monumental problem. Lets start with something easily digestible that Congress can understand. Give Americans a tax credit for getting a yearly checkup. An ounce of prevention is worth a pound of cure. Preventing illness before it happens will save tremendous amount of money. You have to give us an incentive to see a doctor because (speaking as a man) if it ain't broke, I don't want to know if it needs fixing. Second, Congress needs to earmark more funds for early detection of illness. Our whole medical system is predicated on fixing a problem after all the dominoes have fallen. We need to stop the first domino from falling. Better detection leads to better cures. Next we need to create incentives for americans to be and act healthier and create disincentives for non-healthy activities. We need to institute programs that promote local grown, organic and minimally processed foods. Give at register discounts to individuals that purchase designated healthy foods. These can be offset by increasing taxes on tobacco and alcohol. If you raised the price of cigarettes to $10 a pack, it would stop a lot of young people from starting and would give a lot more older people a reason to stop. Give a taxbreak on smoking cessation products and programs. Give people taxbreaks to join healthclubs. We are wasting valuable dollars on preventable diseases. I'm just as guilty as most of america in this regard. I can't afford to change, but I can't afford not to. This would help. The second part of the healthcare issue is liability. There desperately needs to be a cap on malpractice awards. There should also be a non-biased ratings board and review board. Doctors are only governed by doctors and as we've seen by the way banks operated recently, its not good practice. In order to reduce costs, bad doctors need to find a new line of work. They can't just get a slap on the wrist. Its the few really bad ones that cause the most grief. Its unfortunate but a doctors job is a life or death proposition every time they make a decision. Everybody is different and sometimes things that work for 99% of the population don't work for you and that can have tragic consequences. I don't think there is a doctor (other than certfiably insane ones) who intend to kill a patient or want their patient to die. Yet with hindsight we look at everything a doctor has done and point to a potential area with which we can disagree and sue the begeezus out him. Are we right to sue? Sometimes, but every time? There needs to be a specialized court system that can really evaluate malpractice rather than rubberstamp juries who have no qualms about punishing the insurance companies. People don't realize how these awards affect them. Good doctors can not get malpractice insurance. They quit the business. Guess what that leaves? If this is the time for change, then lets see real change. Change our health, change our life.
Tuesday, January 06, 2009
How to Boost America's Economy - Give a Tax Cut without effecting Tax Receipts or Why we need real actions and not words? There has been a lot of talk about doing another stimulus package to help Americans and in turn rebuild the economy. While I don't mind a little scratch in my pocket, there is no way that these programs really help Americans in the long term. Why are we in the current situation that we are in? It has to do with consumption and satifying our wants more than thinking about our needs. The US government could give an immediate and long lasting tax cut (clue: its not a real tax cut) to the American people by enacting a few simple rules. The first real issue is that we have all succumbed to predatory lending practices. This is not a mortgage issue alone. Take a look at your wallet. Most of the people stuck in bad mortgages aren't ones that got suckered by 2yr, 5yr ARMs (adjustable rate mortgages). They got suckered by their creditcard company. The first act by the new government should be to force all the banks that have received TARP funds to immediately drop the interest rate on all issued creditcards down to 7 or 8%. They also should restricted from charging interest on interest accumulated. This will immediately put money back in the pockets of Americans on an ongoing monthly basis. Second, the government should give immediate tax cuts to corporations who manufacture goods in the United States. Not assemble goods, but actually manufacture them. They need to provide tax incentives to companies to switch from overseas manufacturing to the US. If you want to make America strong, you need to give companies a good reason to make a switch. The tax break should be designed to limit the negative impact of higher costs of producing here. However, I would venture a guess that the available job pool has grown so dramatically and is probably skilled enough and hungry enough to limit the cost of the transition. This is just a start. Now, with regard to all the busted mortgages out there again, concessions to greed have to be made. It would be truly unfair for the government to bailout individuals who were not smart enough to understand that their mortgages were going to have a sudden jump when their adjustment period came and not help everyone else. For individuals who are going through the foreclosure process who have jobs, but just no longer the wherewithal to pay their mortgage, there needs to be an extreme home mortgage. Rewrite the mortgage, reduce the interest rate from its high levels down to 5-6% and lengthen the time from 30 years to 45 or 60 years. Which would you rather have as a bank, a loan holder who can pay on time every month or own an over-inflated valued property that you'll sell for a significant loss? Add to the mortgage a 2% early sales fee, to make up some of the difference you had on the original interest and call it a day. These two things will add back to the economy a tremendous amount of buying power. End of Part 1.
Tuesday, December 30, 2008
Ok, so this is my first attempt at blogging. I'm not sure where or how this will fit into the grand scheme of life, but apparently everybody is doing it. By way of introduction, my name is Stuart Fine and I run an investor relations/business development company Carpe DM. I'm also a founding partner of SEPA Capital an institutional investment bank. Heavy emphasis on the institutional part. I'm sure that over the course of blogging I will get into what my clients are working on or some projects that interest me, but today just isn't one of those days. Its nearing the end of the holiday season and for most of the year its a time that everyone looks forward to enjoying. Its been a real tough year for pretty much everyone and its kind of difficult to look forward to disappointment. Rather than looking at what we can or can't get for ourselves this year, we ought to try and see what we can do for others if we can. This all started from a simple story my wife had told me that happened at the Holiday Boutique at the Elementary School. My wife is very active in the parent teacher organization and she was assisting the children in their purchases of little knicknacks for the holidays. There was one little boy who didn't quite have enough money to purchase a little charm necklace for his mom. He was on the verge of tears, when my wife stepped over and reached into her pocket and handed the young boy a dollar or two to make the purchase. My wife told me the boy's face lit up and he was so excited that he was able to buy this beautiful four dollar necklace. It turns out his mother was at the event and immediately paid my wife back, but it got me thinking. How many of us would have done the same thing? How often will we walk away from a person who needs help because we don't want the obligation or to be bothered? How hard is it to really do something to help? How quickly do we change the channel when the feed the children advertisment comes on? Can someone explain to me why people are willing to spend nearly $30 a month to save a dog, but won't spend $20 to save a child? Most of are no longer in a position to spend that kind of money, I understand that and I'm in that position myself, but look around your home and see what can be donated or given to a neighbor. The week prior to Christmas our family donated 6 bags of clothing to the Salvation Army. Whenever we give our child a new toy we take an old one and donate it. In the past years we have donated new toys for Toys for Tots, but couldn't this year. Our daughter in her wonderful spirit, said why can't we do our own Toys for Tots? So next year we plan on organizing a program within the community to do just that. Its the little things that count. Even things that seem inconsequential to you might mean a world of difference to someone else. I wish everyone a healthy and prosperous New Year. Thanks for listening.